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FE

FRANKLIN ELECTRIC CO INC (FELE)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 results were solid on an adjusted basis: revenue rose 9% YoY to $581.7M and adjusted diluted EPS increased 11% YoY to $1.30; GAAP EPS was $0.37 due to a $55.3M pre-tax pension settlement (~$0.93 EPS impact) .
  • Broad-based growth across segments: Water +11%, Energy +15%, Distribution +3%, with consolidated operating margin expanding 80 bps YoY to 14.6% on pricing and cost control .
  • Guidance maintained on sales ($2.09–$2.15B) and EPS adjusted to exclude pension termination; EPS range tightened to $4.00–$4.20 (ex-pension), signaling confidence into year-end .
  • Against S&P Global consensus, FELE delivered a small EPS beat ($1.30 vs $1.29*) and a clear revenue beat ($581.7M vs $563.2M*); catalysts included strong Energy Systems, Distribution margin improvements, and product/price execution, partly offset by tariffs and FX .

What Went Well and What Went Wrong

  • What Went Well

    • Pricing and cost actions expanded operating margin to 14.6% (+80 bps YoY); adjusted EPS up 11% YoY to $1.30 as execution offset macro headwinds .
    • Segment strength: Water +11% with operating margin up 40 bps to 17.9%; Distribution margin up 190 bps to 8.3%; Energy revenue +15% with low-30s margin despite mix/tariffs .
    • Management emphasized innovation and capacity expansion (new pressure-boosting platform, Turkey factory ramp in Q1) as growth enablers: “We continue to…complete several capacity expansion projects that position us well for the future” (CEO) .

  • What Went Wrong

    • GAAP earnings were depressed by a non-cash U.S. pension plan termination: $55.3M pre-tax charge (~$0.93 EPS), driving GAAP EPS to $0.37 vs $1.17 prior year .
    • Energy Systems operating margin declined 280 bps YoY on unfavorable geographic mix and tariff impacts; CFO highlighted two-thirds of the YoY impact from tariffs .
    • FX and tax rate headwinds: FX expense of $2.7M in Q3 and a 27% effective tax rate vs 24% prior year weighed on GAAP results .

Financial Results

Headline metrics vs prior year and prior quarter

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Millions)$531.4 $587.4 $581.7
GAAP Diluted EPS ($)$1.17 $1.31 $0.37
Adjusted Diluted EPS ($)$1.17 n/a$1.30
Operating Income ($M)$73.5 $88.1 $85.1
Operating Margin (%)13.8% 15.0% 14.6%
Gross Profit ($M)$189.7 $211.8 $208.7

Consensus vs Actual (Q3 2025)

MetricConsensus*ActualSurprise
Revenue ($USD Millions)$563.2*$581.7 +3.3%
EPS ($)$1.29*$1.30 +0.8%

*Values retrieved from S&P Global.

Segment Net Sales

Segment ($USD Millions)Q3 2024Q2 2025Q3 2025
Water Systems$302.2 $340.8 $336.6
Energy Systems$69.7 $77.5 $80.0
Distribution$190.8 $200.0 $197.3

Segment Operating Income and Margins

SegmentQ3 2024 OI ($M)Q3 2024 MarginQ2 2025 OI ($M)Q2 2025 MarginQ3 2025 OI ($M)Q3 2025 Margin
Water Systems$52.8 17.5% $61.8 18.1% $60.2 17.9%
Energy Systems$24.1 34.6% $29.1 37.5% $25.4 31.8%
Distribution$12.2 6.4% $16.1 8.1% $16.3 8.3%
Other/Elims$(15.6) —$(18.9) —$(16.8) —

KPI – Geographic and Consolidated Net Sales (Consolidated view)

($USD Millions)U.S. & CanadaLatin AmericaEMEAAsia PacificConsolidated
Q3 2024$183.6 $43.5 $53.4 $21.7 $531.4
Q3 2025$200.6 $55.4 $57.5 $23.1 $581.7

Additional P&L and Cash Flow context

  • FX income/(expense) net: $(2.7)M in Q3 2025 vs +$0.1M in Q3 2024 .
  • Effective tax rate: 27% in Q3 2025 vs 24% prior year quarter .
  • YTD operating cash flow: $134.7M vs $151.1M prior year period; YTD share repurchases ~$129.4M and dividends $37.2M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$2.09–$2.15B (Q1/Q2) $2.09–$2.15B (Q3) Maintained
EPS (excluding pension termination)FY 2025$3.95–$4.25 (impact of pension termination not included) (Q2) $4.00–$4.20 (explicitly excluding pension termination) (Q3) Tightened (narrowed range, midpoint maintained)
Dividend per shareQ4 2025$0.265 declared for Aug 21 in Q2 $0.265 declared; payable Nov 20, record Nov 6 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025 and Q2 2025)Current Period (Q3 2025)Trend
Tariffs/MacroMitigating ~$60M added tariff exposure via pricing/productivity; in-region supply chain; China COGS <10%; selective inventory positioning .Energy margin YoY headwind with ~2/3 of compression from tariffs; incremental Energy price increase announced in Sept to offset .Headwind, managed via price/actions
Distribution margin improvementCost actions, consolidation, tech-enabled OSI; +300 bps margin in Q2; more gains expected .Margin 8.3% (+190 bps YoY); further structural/technology improvements underway .Improving
Energy Systems momentumRecord margins in Q2 (37.5%); backlog up; international growth (India, Saudi); asset monitoring traction .Sales +15%; margin low-30s amid mix/tariffs; backlog up; price increase to support margins .Strong revenue; margins normalizing to low–mid 30s
Water Systems (groundwater, dewatering, treatment)Groundwater stable; water treatment dealer adds driving growth; large dewatering mix weighed on Water margins in Q2 .Large dewatering +38%; water treatment +9%; groundwater flat YoY; Water margin +40 bps YoY .Mixed but positive; dewatering cycle up
Capacity/footprintExpanding manufacturing in Turkey & India; leveraging Barnes foundry to nearshore tools .Izmir, Turkey plant starting production Q1; expect normalized margins by H2 after ramp .Executing
Product/technologyEnergy: EVO ONE monitoring; Water: dewatering systems, OVERSITE/optimizer .Launching pressure-boosting platform (VR Spec Pack, Inline Spec Pack, VersaBoost Pro); strong interest/early adoption .Increasing innovation focus

Management Commentary

  • Strategy and execution: “We delivered another quarter of strong performance… with growth across our end markets, disciplined execution… and continued investment in our long-term growth priorities” (CEO) .
  • Pricing/cost discipline: “Gross margins were up 20 basis points, and operating margins grew by 80 basis points, reflecting strong execution, cost control, and volume leverage” (CEO) .
  • EPS impact from pension termination: “Terminated its U.S. pension plan… EPS impact of approximately $0.93 per share… Adjusted diluted EPS was $1.30 vs $1.17, up 11%” (CFO) .
  • Energy Systems margin outlook: “Where we ended this quarter… in the low 30%. We’ll continue to see that play out through the balance of the year” (CFO) .
  • Capacity expansion: “New factory on our campus in Izmir, Turkey… start production in Q1… expect normalized margins by back half” (CEO) .

Q&A Highlights

  • 2026 outlook and volume/price: Expect flat-to-modest U.S. water markets but volume growth via innovation/channel expansion; price carryover 1–2% with incremental pricing where needed (e.g., Energy) .
  • Energy Systems margins: YoY compression driven ~two-thirds by tariffs; price actions in place; targeting low–mid 30% margin profile with growth in and outside U.S. .
  • Pressure boosting TAM and retrofit opportunity: “TAM is in the high hundreds of millions… opportunity across commercial, industrial, and residential; retrofit likely stronger than new-build” (CEO) .
  • Backlog/order trends: Energy backlog up YoY; book-to-bill >1 across all segments; indicates solid near-term revenue visibility .
  • FX headwinds and regional dynamics: Hyperinflation/FX in Turkey, Brazil, Argentina pressured Q3; not banking on major improvement in Q4 (some potential improvement in Argentina) .

Estimates Context

  • For Q3 2025, S&P Global consensus EPS was $1.29 on revenue of $563.2M (4 and 5 estimates, respectively). FELE delivered $1.30 adjusted EPS and $581.7M revenue, a slight EPS beat and ~3.3% revenue beat* .
  • Consensus appears aligned with adjusted (non-GAAP) EPS given S&P Global “actual” EPS equals $1.30; GAAP EPS of $0.37 reflects the non-cash pension charge not included in guidance or consensus* .

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • Core execution intact: Adj. EPS +11% YoY and operating margin +80 bps YoY despite tariffs/FX; price/cost discipline and mix management remain effective .
  • Segment quality: Energy growing double-digits with low–mid 30% margin trajectory post price actions; Distribution margins improving structurally; Water expanding via dewatering and treatment .
  • Revenue/Adj. EPS outpaced consensus; GAAP noise from pension settlement is non-recurring and excluded from full-year guidance—focus on adjusted progression and cash generation .
  • FY25 guide intact and EPS range tightened, implying management confidence into Q4; watch tariffs/FX and Energy mix for Q4 cadence .
  • Growth levers: innovation (pressure boosting, monitoring), capacity in Turkey/India, and M&A pipeline positioning for 2026; backlog and book-to-bill >1 provide near-term visibility .
  • Monitoring list: Energy margin trajectory vs tariffs, dewatering cycle durability into 2026, FX in hyperinflation markets, and continued Distribution margin expansion .